Hotels/Restaurants/Casinos

McDonald's under tax scrutiny in France

RuthBender

PARIS-- McDonald's Corp. is the latest U.S. company to come under fire in France for the way it pays its taxes.

The fast food chain Wednesday defended itself against a media report alleging McDonald's France avoided paying taxes on around 2.2. billion euros ($2.98 billion) of revenue over the past five years.

"McDonald's pays all of its taxes in France on the totality of its revenue, in line with current legislation," said Alexis Bourdon, McDonald's France vice president in charge of finance.

French magazine L'Express reported that the French Finance Ministry suspects McDonald's of diverting fees paid by franchisees to units in Luxembourg and Switzerland, avoiding paying some corporate taxes in France where rates are higher.

McDonald's acknowledges that its French restaurants pay royalties to the parent company but "firmly refutes" allegations that it withheld revenue from French taxes. McDonald's France and its franchises paid EUR1 billion in corporate tax in France since 2009, according to Mr. Bourdon.

French officials declined to comment on the specific allegations against the company.

"You have asked me about a tax case about which I can't tell you anything as it is protected by rules on tax secrecy," Finance Minister Pierre Moscovici told Parliament on Wednesday, responding to a question from a lawmaker. "But rest assured that my ministry has a very close eye on everything companies do."

McDonald's said tax inspectors visited its headquarters in Guyancourt west of Paris in October seeking information, but said that this was part of a regular tax inspection. The company said it "fully cooperated" with the French tax authorities.

McDonald's is quite popular in France, the second-largest contributor to profits after the U.S., according to a spokeswoman in Paris.

The chain has 1,258 restaurants across the country, 80% of which are managed under franchises, according to the group's French website. The franchisees pay a licensing fee to McDonald's for exploiting the brand and equipment such as information technology systems, restaurant decoration and training for staff.

The license fees are accounted for as business expenses, which are deductible from corporate tax in France, Mr. Bourdon said.

McDonald's is only the latest multinational company to come under scrutiny for allegations of shifting profits and avoiding corporate income taxes through the use of royalty fees paid between units. French officials have in recent years investigated Google Inc., Amazon.com Inc., Microsoft Corp. and other companies for shifting profits, though the companies and many tax experts say their arrangements are legal.

In Europe, McDonald's has set up a thicket of corporate entities to hold real estate and restaurants, as well as to collect royalties from franchise restaurants owned by outside companies. Many franchisees in Europe, for instance, pay a percentage of their annual revenue to a Luxembourg company dubbed McD Europe Franchising S.à.r.l., according to a company filing. The Luxembourg company then pays an annual fee to the parent company.

This arrangement was highlighted in the article in L'Express.

McDonald's does pay significant taxes in France, through the holding companies that own real estate and restaurants in the country. Holding company MCD France paid nearly EUR89 million in corporate income tax in 2012, at least in part for its subsidiary McDonald's France, which posted profit of EUR286 million, according to corporate filings. Overall, McDonald's France, which owns part or all of many restaurants in the country, brought in EUR850 million in revenue.

Julie Jargon contributed to this article.

Write to Ruth Bender at Ruth.Bender@wsj.com and Sam Schechner at sam.schechner@wsj.com

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